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A vendor recently talked about their predictions for 2020 and called it the year that the consumption IT model takes hold.
Initially, it was easy to place that prediction into the “buzzword of the day” file given it’s been a common refrain from this contractor for much of the past few years.
But wait, maybe, just maybe they actually are on to something?
For evidence, look no further than the General Services Administration’s draft memo on letting agencies buy cloud services off the schedule contract through this consumption or “pay by the drink” approach.
GSA senior procurement executive Jeff Koses sent to industry for comments a draft acquisition letter detailing how buying consumption based cloud services could work.
“While offering cloud computing on a consumption basis is already permissible under the FSS program, the procedures outlined in this acquisition letter further improve this strategy while seeking to realize the best practices in the private-sector of cost transparency and efficiency, increased cyber security and more robust competition,” Koses wrote in the letter, which Federal News Network obtained. “By tying cloud computing procurements to commercial market prices, still in the fixed price family, this approach provides cost transparency without burdening contractors with additional transactional price reporting requirements. This approach promotes cost efficiency as it reduces the need to lock into long term contracts in markets where falling prices are reasonably anticipated. And with a contract structure more closely tied to real time demand, this approach also provides greater flexibility to take advantage of technology improvements and better support cyber security.”
The draft letter also said using this consumption-based approach to buying cloud services will increase competition because it moves agencies toward commercial best practices.
“Buying cloud computing on a consumption basis will also provide GSA with information to evaluate the potential to purchase other types of information technology on a consumption basis,” Koses writes.
5 questions on buying cloud
Federal News Network confirmed GSA sent this letter to several industry associations seeking feedback.
“Per-consumption is a very popular way to acquire cloud services. It is an established acquisition method in the commercial market. GSA is moving in the right direction by allowing the consumption model to be used on the schedules program. It was essential if the schedules were to remain competitive in this area,” said Larry Allen, managing director of BDO and a federal procurement expert. “I think industry will have to weigh in on what the draft policy said about fixed-pricing and discounts. I am not sure how compatible that is with how consumption is sold commercially. I suspect that will be an area of particular feedback.”
GSA laid out five questions for industry to answer. These range from whether a fixed-price contract makes sense, to price fluctuations, to questions trying to better understand the pay-as-you-go model in the private sector.
Additionally, GSA is asking for input on the “requirements task order concept” proposed as part of the consumption model.
“The concept we’re exploring is different in that the government’s obligation to satisfy its requirements is limited to a task order issued against an FSS contract; instead of orders against a requirements contract, future requirements will be satisfied by activating contract line item numbers (CLINs) on a task order,” the draft letter states. “From a fiscal standpoint, this concept is similar to a typical requirements contract in that funds for future requirements will be obligated when the government activates a CLIN and obtains those services.”
The approach GSA lays out in the draft memo offers several key concepts for the consumption model:
Agencies must use no-year or multi-year funding that isn’t expiring in the fiscal year they are buying the services.
Each contract must have a ceiling price for all estimated cloud computing, and orders may not exceed 50% of the initial quantity ordered for the same line item.
The Price Reduction Clause will not be applied to these orders, instead contractors must use the Transcational Data Reporting standards.
Agencies will use a firm fixed-price contract that is based on the vendor’s market price list or an index with a discount that will remain constant as the price list or index changes.
“[T]he Office of Acquisition Policy will partner with the Federal Acquisition Services’s IT Category office in collecting and analyzing data on key metrics,” the memo states. “Final metrics are intended to address whether the government realized cost transparency and efficiency, increased cyber security and obtained more robust competition.”
GSA’s ITC office is developing a best practices guide for purchasing cloud computing on a consumption basis using GSA Schedules.
Clearing the path as spending goes up
Industry experts praised GSA for taking this initial step to lay out these proposed changes.
“The coalition supports efforts to streamline and improve the flexibility of cloud contracting in furtherance of agency mission fulfillment,” said Roger Waldron, the president of The Coalition for Government Procurement in a statement to Federal News Network.
The path to buy cloud services has been a significant obstacle for some time. The Office of Management and Budget called out the need for a flexible model for buying cloud services since the initial 25-point IT modernization plan in 2010 offered up during the Obama administration.
The Trump administration, in its cloud smart strategy, said agencies often buy cloud services through contracts that are not marketed specifically for that purpose.
Clearing the path to buy cloud services becomes even more important as agencies are expected to increase their spending over the next few years. IDC Government Insights predicts significant growth through 2021, where spending is expected to reach $3.3 billion. Deltek, a market research firm, estimated cloud spending to account for 9% of the federal civilian IT market by 2024.
An industry source, who requested anonymity in order to talk candidly about the draft memo, said this is another example of how GSA has been leaning forward on several contracting initiatives.
“I think some of this is about educating the workforce since the schedules already allow for this type of buying,” said the source. “This draft letter gives GSA a broader opportunity to write down these authorities that allow them to use existing authorities to do their job. What is expressed here is similar to the way GSA has bought cloud as an agency. This consumption model has been done and tried in some variation. So the fact GSA is thinking about it means they are putting a stake in ground to say cloud is important and essential for government to adopt in a bigger way.”
This isn’t the first time GSA has tried to make it easier for agencies to buy cloud services. In 2016, the agency began work to the change the Federal Acquisition Regulations and even considered legislative remedies, but it’s unclear if anything came from those initiatives. A year later, an interagency working group developed a best practices guide for buying cloud services.
The source added the draft memo is less about the federal acquisition process and more about how buying cloud services butts up against the federal appropriations process.
“It is telling that the memo calls out multi-year or no-year money as the money to do this with because single-year money has too many challenges,” the source said. “Buying large chunks of cloud services is not necessarily efficient and there are more ways to be efficient, especially given how industry is selling these services.”
In the end, that is what GSA is trying to do here — give agencies some top cover to address one of the obstacles in moving to the cloud.